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Services Marketing

  2. 2. UNIT – I MARKETING SERVICES INTRODUCTION The turn of the century has seen profound changes in the global economy. Services have played a crucial part in these changes, because services are becoming the way organizations meet with their markets. Already organizations have discovered that their survival no longer exclusively depends on the products they offer, but also on the additional offerings they make to their customer that differentiate them from their competitors. Innovative organizations, offering new services as well as unique customer services, are now succeeding in market where established organizations have failed. Services marketing are not a self – enclosed task but is integral organizations as a whole and the object of the activity is people, who are reactive, not passive as compared with a product. Services marketing concepts, frameworks and strategies were developed as the result of interlinked the forces of many industries, organizations, and individuals who have realized the increasingly important role services are playing in the current world economy. Initially the development of services marketing focused on service industries. However, manufacturing and technology industries recognized services as a prerequisite to compliment their product, in order to compete successfully in the market place. Providing a service is a people business. Their interaction between customer and service employees is vital for the actual success of service delivery. Rendering excellent quality service depends very much on the way service employees behave. In this regard, service competencies and service inclination contribute towards the success of service. Customers are becoming more educated and demand not only quality product but also high levels of services to accompany them. Service organizations therefore need to adapt to customers’ views on customers as better than those providing by other service providers. SERVICES: THE CONCEPT All industrial and economic activities are divided into three, namely, primary, secondary and tertiary. Primary activities include agriculture, fishing, forestry, mining etc. Secondary activities consist of manufacturing, processing, construction etc. Tertiary activities comprise of services, distribution etc. Services form a major part of economic activities and the world today is dominated by the service sector. The service sector is enormously large and varied. It includes banking, transportation, insurance, communication, education, employment, healthcare, Legal service, accounting, tourism, hospitality and information services. Some of the services are provided
  3. 3. on a non- profit basis, for example, education and healthcare, while others are provided on a commercial basis such as hotels, professional consultants, solicitors etc. Defining a service is not an easy task and there is no single universally accepted definition of the term. An earlier view of the concept of service was that it was a mere benefit attached to a physical product. Now a major shift has taken place in the concept of service and the service industry at present has achieved its independence and growth quite apart from physical goods. Hence service industries are fundamentally different from manufacturing industries. In common parlance the term services means personal services like repairing, health service, legal services, counselling etc. Marketing experts view the problem in a different way. They feel that the contents of services are much wider. Services are deeds, acts or performances. The complexity of definition of services increases when one realises that there are no pure services or pure tangible products. DEFINITIONS The American Marketing Association defined services as “activities, benefits, or satisfactions which are offered for sale, or provided in connection with the sale of goods”. Regan suggested that “services represent either intangible yielding satisfactions directly (transportation, housing etc.), or intangibles yielding satisfactions jointly when purchased either with commodities or other services (credit, delivery, etc.)”. Robert Judd defined service as “a market transaction by an enterprise or entrepreneur where the object of the market transaction is other than the transfer of ownership of a tangible commodity”. Blois says that, “a service is an activity offered for sale which yields benefits and satisfactions without leading to a physical change in the form of a good”. Stanton defined service as “Separately identifiable, intangible activities which provide want satisfaction when marketed to consumers and/or industrial users and which are not necessarily tied to the sale of a product or another service”. Kotler and Bloom defined service as, “any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product”.
  4. 4. Gronroos defined a service as “an activity or series of activities of more or less intangible nature that normally, not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solution to customer problems”. SERVICES: FEATURES Services have some salient features, which necessitate a new vision, a distinct approach and a world class professional excellence to deal with the various aspects of the services effectively and profitably. The service professionals who are not well aware of these features find it difficult to make creative decisions. It is against this background that the important features of services are analysed as follows for making appropriate managerial decisions. 1. Intangibility Services are intangible in that they do not have a physical shape. So a consumer cannot touch or see it but can derive the benefits after buying it. This intangibility makes the task of decision makers more complex. While motivating the prospects they cannot display the positive or negative aspects of services. The consumer also finds it difficult to measure service value and quality. To overcome this, consumers tend to look for evidence of quality and other attributes. They also consider physical evidence and qualifications or professional standing of the consultant. Services by nature are abstract. Therefore, services carry with them a combination of intangible perceptions and benefits. Thus it is right to mention that due to intangibility, the managing of services become much more complicated. 2. Inseparability Services often cannot be separated from the person of the service provider. Moreover, some services must be created and dispensed simultaneously. For example, dentists create and dispense almost all their services at the same time. From the marketing point of view, inseparability implies that direct sale is the only channel of distribution of services. This feature of services also limits the scale of operation of a service firm. The goods are produced at one point and then distributed by others at other points. In services, we find the selling processes contributing to its creation. Thus in the words of Donald Cowell, goods are produced, sold and then consumed, whereas services are sold and then produced and consumed.
  5. 5. 3. Heterogeneity It is not possible for a service firm to standardise its service. Each unit of the service is somewhat different from the other units of the same service. For example, an airline does not provide the same quality of service on each journey. The primary reason for such inconsistency is the effort to satisfy the customer's need to the fullest. This requires the interaction of customers and service providers. They should do everything to ensure the consistent quality of the service. 4. Perishability Services are highly perishable and they cannot be stored. In the context of services, if we fail to sell the services, it is lost forever. For example, a vacant seat in an aircraft or an un- booked room in a hotel etc. are opportunities lost forever. This makes it essential those decision-makers should minimise the risk by utilising their professionalism. The strategies include peak load pricing, motivating non- peak period consumption etc. 5. Ownership Lack of ownership is a basic feature of the service industry. A customer may only have access to or use of a facility. Payment is for the use, access or hire of the service. Thus the ownership is not affected in the process of selling the services. 6. Fluctuating Demand: Generally the demand for services is fluctuating in nature. Demand for certain services that may be high during peak seasons may be low during off-seasons. Most service organisations have capacity constraints. So simultaneous attempt to achieve closer match between demand and supply is sought. The combination of perishability and fluctuating demand offers challenges to service company executives in planning, pricing and promotion of services. Management experts would like to add some more features to services while distinguishing them from products. These are: 1. Lack of entry barriers: Introduction of new changes in various services is not patentable i.e. the innovativeness of one firm can easily be adopted by another. Also, services are not generally capital intensive, and thus entering a service sector is not at all difficult. 2. Minimum opportunities to achieve economies of scale: Most services operate from multiple locations so that they can cater to the surrounding geographical area. This prevents the service provider from producing a service at one place as
  6. 6. is done in the case of producing tangible goods. Thus opportunities of achieving economies of scale are difficult. 3. Customer Contact `The customer is very much a part of the service process. A service can be classified as high or low contact depending on the percentage of time the customer spends in the delivery system relative to the total service time. In high contact services the customer influences the timing of demand and the nature of service by direct participation in the process. CLASSIFICATION OF SERVICES There have been a number of approaches towards classification of services. The intention behind this classification is to provide service managers with a means of identifying other companies who, though operating in different types of services, share certain common characteristics. Lovelock classifies services based on five crucial factors. They are:  Nature of the service act.  The relationship of service organisation to customers.  The extent of customization and judgement.  The nature of supply and demand for the service  The process of service delivery A simple form of classification of services is into: a) Business and professional services. b) Non-business services Business and Professional Services include Banking, Insurance, Advertising, Consulting, Market Information, Budgeting, Legal, Medical, Accounting etc. Non-business Services include Leisure, Entertainment, Recreation, Education, Counselling etc. Helen Woodruffe classifies services into the following five categories: 1. End User According to the end-user of services, it may be classified into:  Consumer Services - such as Leisure, Hairdressing, Personal Service  Business Services- Advertising Agencies, Printing, Accounting, Consultancy  Industrial Services- Plant Maintenance, Repair Service, Project Management 2. Service Tangibility The degree of tangibility of a service can be used to classify services:  Highly Tangible Services - Car Rentals, Vending Machines, Telecommunications.
  7. 7.  Services Linked to Tangible Goods - Car Service, Repair of Domestic Appliances.  Highly Intangible Services - Consultancy, Legal Service. 3. People based services: Services can be classified based on the extent of the consumer contact:  People-Based Services -Education, Healthcare etc. where high contact is necessary  Equipment Based Services - only low customer contact is required for such services: Car Wash, Cinema, and Vending Machines. 4. Expertise / Professionalism On the basis of expertise and skills required, services may be classified into:  Professional Services - Legal, Medical, Accounting, and Consultancy.  Non-Professional Services - Day Care, Baby Sitting. 5. Profit Orientation The overall business orientation is a recognised means of classification:  Commercial Services - Banks, Insurance, Hotel and Catering Services.  Non-Commercial Services - Charities, Public Sector Leisure Facilities. PROBLEMS IN MARKETING SERVICES The major problems faced by marketing a service are: 1. A service cannot be demonstrated. 2. Sale, production and consumption of services takes place simultaneously. 3. A service cannot be stored. It cannot be produced in anticipation of demand. 4. Services cannot be protected through patents. 5. Services cannot be separated from the service provider. 6. Services are not standardized and are inconsistent. 7. Service providers appointing franchisees may face problems of quality of services. 8. The customer perception of service quality is more directly linked to the morale, motivation and skill of the frontline staff of any service organization. FORMS OF MEASURING SERVICE MARKETING CAPACITY Five potential forms for measuring and managing capacity of service marketing are as follows: 1. Physical facilities designed to contain customers 2. Physical facilities designed for storing or processing goods 3. Physical equipment used to process people, possessions or information 4. Labour 5. Infrastructure.
  8. 8. 1. Physical facilities designed to contain customers: Physical facilities designed to contain customers and used for delivering people-processing services or mental stimulus processing services. Examples include hospital clinics, hotels, passenger aircraft, buses, restaurants, swimming pools, cinemas, concert halls and college classrooms. In these situations, the primary capacity constraint is likely to be defined in terms of such furnishings as beds, rooms, seats, tables or desks. In some cases, local regulations may set an upper limit to the number of people allowed in the interest of health or fire safety. 2. Physical facilities designed for storing or processing goods: Physical facilities designed for storing or processing goods that either belong to customers or are being offered to them for sale. Examples include supermarket shelves, pipelines, warehouses, car parks, freight containers or railway freight cars. 3. Physical equipment used to process people, possessions or information: Physical equipment used to process people, possessions or information may embrace a huge range of items and be very situation-specific – machinery, telephones, hair dryers, computers, diagnostic equipment, airport security detectors, toll gates on roads and bridges, cooking ovens, bank ATMs, repair tools and cash registers are among the many items whose absence in sufficient numbers for a given level of demand can bring service to a crawl (or a complete stop). 4. Labour: Labour, a key element of productive capacity in all high-contact services and many low- contact ones, may be used for both physical and mental work. Staffing levels for personnel, from restaurant waiters and waitresses to nurses to telephone operators, must be sufficient to meet anticipated demand – otherwise customers will be kept waiting or service rushed. Professional services are especially dependent on highly skilled staff to create high value-added, information-based output. 5. Infrastructure: Many organizations are dependent on access to sufficient capacity on the public or private infrastructure to be able to deliver quality service to their own customers. Capacity problems of this nature may include busy telephone circuits, electrical power failures (or black outs caused by reduced voltage) congested air ways that lead to air traffic restrictions, and traffic jams on major roads.
  9. 9. SERVICE DESIGN Marketing is the performance of those business activities that direct the flow of goods or services from producer to ultimate consumer. The customers may have different likes and dislikes, preferences and attitudes. These things play a crucial role to develop a product or service, which is appropriate according to the aspiration of the customers. Further the relevance of product or service to the aspiration of the customers decides the final success or failure of the product or service. Thus customer’s requirements and the performance standards that the service needs to satisfy form the specifications for design. The design consists of four related components: i. Product design ii. Facilities design iii. Service operations process design. iv. Customers service process design. Service product design refers to the design of the physical attributes of the service. The subscription options for home cable television service or the banking transactions that are available through an automatic teller machine are examples of such attributes. These attributes may involve the assembly of raw materials or developing software. Further the service facility design refers to the design of the physical layout of the facilities. Customers’ perceptions of the quality of the service are influenced by attributes such as the cleanliness, spaciousness, lighting and layout of the environment, where the service takes place. In addition to these facilities, other additional facilities such also need to be designed. The efficiency of service operations depends on the configuration of these facilities. Service operations process design refers to the activities that are needed to deliver or maintain a service. The activities that make up the operations processes are those required for the service to deliver its output. By contrast, the activities comprising the customer service process design pertain to the interactions between the customer and the service provider. The customer service and service operations activities together make up the operations process. The quality of the service experience depends on the performance of both types of activities. These activities therefore need to be designed together. STEPS IN SEVICE DESIGN A real design exercise involves the complex interactions of a variety of technical and non-technical factors that affect the quality of the design. In order to design a product, it is
  10. 10. important to employ a methodology that integrates the technical aspects of the design with the marketing and management principles that are required to ensure the commercialization of the product. Such a methodology is referred to as total design. Step 1: To involve the customer in designing process. Step 2: To determine the specifications of the design from these customers. Step 3: To determine the technical aspects of the design from these customers as per the specifications. The technology should be a derivative of the customers need and not the other way around. Step 4: To design the service using a multi-function team with. Step 5: To test the design in the marketplace, and not in the laboratory. A successful design should not only be one that creatively applies the latest technology, but should also be one that customers like, purchase, and use. BLUEPRINTING AND SERVICE MAPPING Blueprinting is a technique that helps to understand the totality of a service as a process, so that “fail points,” those stages of the service that have a high statistical probability of generating problems, can be identified and properly understood. The blueprint is an objective, graphical depiction of the service. Blueprinting is a process that highlights by way of a process flow diagram the service system so that the people who are to execute the service can understand their roles. The systematic process is portrayed in a way that the roles of customers, employees, and the processes that support those roles are spelled out to explicitly define each and every step of the service delivery. The key steps in preparing the service blueprint as follows: 1. To identify the activities involved in delivering the service and present these in a diagrammatic form. The level of detail will depend on the complexity and nature of the service. 2. To identify the critical points. These are stages where things may go wrong. The corrective measures at this stage must be determined, and systems and procedures should be developed to reduce the occurring in the first instance. 3. To set standards against which the performance should be measured.
  11. 11. 4. To analyze the profitability of the service delivered, in terms of the number of customers served during a period of time. On the other hand service maps are to be built up on blueprints and two additional features are to be provided to add to management information.  To pay greater attention to customer interaction with the service organization. Further the clear diagrammatic distinctions should be made between actions of customers and of service contact personnel. In effect, more should be provided on the front stage activities in blueprints.  Additional vertical layers to the diagram are to be drawn in service maps to provide a visual representation of the structure of the service.  In particular, the backstage activities are to be divided into those provided by frontline employees, support staff and management services. Service-Blueprinting is a service planning help tool. It can be used for developing new innovative services as well as for improving existing services. The method is also appropriate for ensuring the quality of service processes. The Service-Blueprinting output consists of a graphically-presented overview of the service process and its activities. Service- Blueprinting allows for visualization of the service development process in its early stages. In each process step, contact points between client and firm (and physical element, if a tangible service) become visible. It is possible to identify failure points and discover areas for innovation as well. This technique eases the identification of cost saving potentials and offers an excellent base for further Service-process management. EVOLUTION OF SERVICE BLUEPRINTING Service blueprinting was initially introduced as a process control technique for services that offered several advantages: it was more precise than verbal definitions; it could help solve problems pre-emptively; and it was able to identify failure points in a service operation. Just as firms have evolved to become more customer-focused, so has service blueprinting. One early adaptation was the clarification of service blueprinting as a process for plotting the customer process against organizational structure. Service blueprinting was further developed to distinguish between onstage and backstage activities. These key components still form the basis of the technique and its most important feature, that of illuminating the customer’s role in the service process. In addition,
  12. 12. it provides an overview so that employees and internal units can relate what they do to the entire, integrated service system. Blueprints also help to reinforce a customer-orientation among employees as well as clarify interfaces across departmental lines. COMPONENTS OF SERVICE BLUEPRINTS There are five components of a typical service blueprint. • Customer Actions, • Onstage/Visible Contact Employee Actions, • Backstage/Invisible Contact Employee Actions, • Support Processes, and • Physical Evidence. “Customer actions” include all of the steps that customers take as part of the service delivery process. Customer actions are depicted chronologically across the top of the blueprint. What makes blueprinting different from other flowcharting approaches is that the actions of the customer are central to the creation of the blueprint, and as such they are typically laid out first so that all other activities can be seen as supporting the value proposition offered to or co-created with the customer. The next critical component is the “onstage/visible contact employee actions,” separated from the customer by the line of interaction. Those actions of frontline contact employees that occur as part of a face-to-face encounter are depicted as onstage contact employee actions. Every time the line of interaction is crossed via a link from the customer to a contact employee (or company self-service technology, etc.), a moment of truth has occurred. ` The next significant component of the blueprint is the “backstage/invisible contact employee actions,” separated from the onstage actions by the very important line of visibility. Everything that appears above the line of visibility is seen by the customer, while everything below it is invisible. Below the line of visibility, all of the other contact employee actions are described, both those that involve non-visible interaction with customers (e.g., telephone calls) as well as any other activities that contact employees do in order to prepare to serve customers or that are part of their role responsibilities.
  13. 13. The fourth critical component of the blueprint is “support processes” separated from contact employees by the internal line of interaction. These are all of the activities carried out by individuals and units within the company who are not contact employees but that need to happen in order for the service to be delivered. Vertical lines from the support area connecting with other areas of the blueprint show the inter-functional connections and support that are essential to delivering the service to the final customer. Finally, for each customer action, and every moment of truth, the “physical evidence” that customers come in contact with is described at the very top of the blueprint. These are all the tangibles that customers are exposed to that can influence their quality perceptions. The Service Blueprinting is based on the separation of the service into individual processes that can be assumed separately. The process progress chart is depicted horizontally. Each single component is on a different plane, ordered vertically. Each plane represents a level of closeness to the client, the higher the level the closer the interaction level is to the client Planes Service Blueprinting differentiates between five degrees of client interaction and integration (See Figure):  The client interaction line separates the process steps of the service activities that the client carries out independently.  The visibility line separates the service activities that the client can see from the service activities which are hidden from view. Above the line, the process components that can be seen, heard, smelt or perceived are ordered.  The internal interaction line separates activities that imply immediate relation to the client’s order from support activities. Support activities serve as the preparation for the primary activities but do not belong to the client’s order. Examples are the maintenance of a ski lift or the cleaning of an office.  The control line separates the preparation activities from the general management activities.
  14. 14. BLUE PRINT OF A COURIER SERVICE Fig: Blueprinting of a Courier Service The components discussed above are depicted in figure as a blueprint of a courier service. Each component is a different level. The top level is portrayed by the line of interaction, signifying that all customer actions take place above this line owing to the interaction with the employees. Another feature of this print is that we can see an interaction take place the moment a vertical line crosses the horizontal line. The next horizontal line is the line of visibility that separates visible (onstage) activities from those of backstage. This is the evidence of service to customer and is created in light of the nature of the service and the appeal it may have for the customer. This is exemplified by some of the fast food restaurants and coffee shops. Such setups have their show kitchens operating very much in visibility of the customer. The area below the line of visibility is that of processes, which support the service delivery and are performed by the support staff that may or may not be visible to customers. This area is represented by interactions between employees of the company. Vertical lines here as well represent internal encounters.
  15. 15. The above explains the basic flow that may characterize a blueprint. With complete explosion of all activities, we can see in even more detail the interactions and the tasks involved therein. It will show us where and how much customers are involved; who helps the customer; how many people we need to help him; what kind of relationships are defined among the staff that support each other to deliver the service; and, how many staff members we need to do different tasks etc.
  16. 16. REASONS FOR GROWTH OF SERVICES Manufacturing industries grew because they produced tangible goods which satisfied man’s physiological needs of food, shelter and clothing. As the basic need was fulfilled there was demand for improved satisfaction, and this led to a proliferation of variations of the same product and a number of companies involved in its manufacture. The growth of service industries can be traced to the economic development of society and the socio-cultural changes that have accompanied it. Changing environmental forces brought out the various types of services in forefront of the economy. These environmental forces separately or in combination create new type of service. The following environmental factors are responsible to make a new service.  Consumer Affluence: Due to the fast rise in the income of consumers, they are attracted towards the new areas like clubs, health clubs, domestic services, travel and tourism, entertainment, banking, investment, retailing, insurance, repairs, etc. and these are growing much faster than ever before. There is a significant change in the pattern of family expenditure.  Working Women: During the recent times a large number of women have come up in a variety of professions. The work performance of women in most of services sector like bank, insurance, airlines, etc. is highly appreciable. In short, women are getting involved in almost all male dominated activities. Due to increasing involvement of women in commercial activities, the services like domestic activities, fast food restaurants, marriage counselling, personal care, financial services, retailing, etc. have emerged in the recent times.  Double Income No Kids (DINK): Dinks are the working couples who have consciously postponed parenthood plans indefinitely or in an increasing number of cases, have decided not to have any children ever. The dink culture is getting stronger and spreading wider day by day. The realisation that parenthood is likely to result in more commitments at home and demands on their time, thereby slowing down their career plans and ambitions, make them postpone their parenthood plans. Whatsoever be their life style, they have double income and no kids, resulting in the emerging and enhancing of services like, entertainment, hotels and restaurants, career institutes, domestic services, travel resorts, personal care, etc.  Leisure Time: People do get some time to travel and holiday, and therefore, there is a need for travel agencies, resorts, hotels and entertainment. There are others who
  17. 17. would like to utilise this time to improve their career prospects, and therefore, there is a need for adult education, distance learning, part time courses, etc.  Greater Life Expectancy: According to the World Development Report and World Human Resource Index, the life expectancy of people has increased significantly all over the world barring few developing countries. It may be due to the advancement in the medical technology, and greater awareness about health and education. Greater life expectancy invites opportunities in services like hospitals, Nursing Homes, entertainment, leisure services, investment banking and so on.  Product Innovations: In the changing time the consumers have become more conscious of quality than cost. They need high quality goods at par with international standards. Having this in mind the manufacturers have focused their attention on quality improvement, innovations, etc. In this process many more services have emerged on account of product innovation. Some of them are servicing services, repairs, computer, training and development, education, etc.  Product Complexity: A large number of products are now being purchased in households which can be serviced only by specialised persons e.g. water purifiers, microwave oven, computers, etc., giving rise to the need for services. The growing product complexities create greater demand for skilled specialists to provide maintenance for these complex products and bring out other services like expert advice, consultancy services, etc.  Complexity of Life: Certain product and services have made human life more comfortable and complex as well. Also, life itself has become more complex due to the socio-economic, psycho-political, technological and legal change. This has brought about the emergence of services like legal aid, tax consulting, professional services, airlines, courier services, insurance, banking, etc.  New Young Youth: Every new generation has its own characteristics and enjoys a different life style. There is a lot of difference between the generations in respect to their living conditions/ styles, maturity, thinking, attitudes, behaviour, beliefs, satisfactions, performance values and so on. Today’s generation with all these changes provide more opportunities to services like entertainment, fast food, computers, travel, picnic resorts, educational institution, counselling, retailing, etc.  Resource Scarcity and Ecology: As the natural resources are depleting and need for conservation is increasing, we have seen the coming up of service providers like pollution control agencies, car pools, water management, etc.
  18. 18.  Corporate Crowd: The phenomena of globalisation, privatisation and liberalisation coupled with faster urbanization have created the corporate world crowd and its support services. This crowd is responsible in bringing the new services, and redefining the old ones. The services like hotels and restaurants, banking, insurance, travel and tourism, advertising, airlines, courier services, marketing research, health care, legal services, etc. will emerge and flourish more and more. ROLE OF SERVICES IN ECONOMY There is a growing market for services and increasing dominance of services in economies worldwide. Services are a dominant force in countries around the world as can be seen in the global feature. The tremendous growth and economic contributions of the service sector have drawn increasing attention to the issues and problems of service sector industries. There was a time when it was believed that the industrial revolution was the only solution to the problems of poverty, unemployment and other ills of society. Now, however, the service sector promises to fulfil the task. Services touch the lives of every person every day whether it is in the field of food services, communication, leisure services, maintenance services, travel, amusement parks etc. Services are increasingly being used by the corporate as well as the household sector. This emphasis on services and its increasing use has not happened overnight, started in the twentieth century especially after the end of World War II. Due to large scale destruction during the war, a lot of economic activities had to be carried out to bring the war torn economies back on road. World War II marked as milestone in the explosive rise of service industries. Throughout the second half of the twentieth century services industries have attained considerable growth in most western nations. After Green Revolution and Industrial revolution, the next possible popular revolution will be in the field of service sector. In Green revolution the man learnt to use, exploit and interact with nature (i.e., land and natural resources). In Industrial revolution man learnt to use, exploit and interact with equipments and machines for development. In case of services, man is learning to use, exploit and interact with other man-made resources for development. In the present day world the service sector is growing at a phenomenal rate and termed as ‘sunrise sector of the economy’. Today service industries are the source of economic leadership. Many developed countries are now termed as service economy. Raising the standard of living of people through services; service sector may well symbolise the third and possibly the most important revolution of recent times. The standard of living of people will not increase only through
  19. 19. capital formation, economic transformation and national income; indeed it is also important that masses are aware of the living style and behaviour. Service sector creates and expands job opportunities. The new and indeed, the biggest employment opportunities are offered by service industries. SERVICES IN INDIA Services lie at the very hub of economic activity in any society. Our welfare and the welfare of our economy are now based on services. Almost all countries of globe look interested in utilising this sector of the economy. For a developing country like India, the need of the hour is to assign due weightage to the development of service sector. The service sector is assuming increasing importance in the Indian economy. In the recent past, we have seen the transition from agrarian nature of economy to agro-based industry to industrial growth, now we tend to think in terms of developing the service sector. Probably it is because this sector can create more jobs at a low cost. Service sector has significant contribution for income generation and employment creations. In India, service sector is one of the fastest growing sectors today. It provides more than 55 per cent of the jobs and about 40 per cent export is from service sector. The service sector dominates the Indian economy today, contributing more than half of our national income. No wonder the service sector will be the biggest driver of new economic growth and profit earning in the new millennium for the world in general as well as for India in particular. As a result, the service organisations, if they have to be successful, have to have a more professional approach to manage their business. Perhaps, it is in this context the role of marketing is gaining importance in the service organisations.
  20. 20. QUESTIONS 1. Define Services. 2. What is Product Design? 3. What is Facility Design? 4. What is Blue Printing? 5. What is Service Mapping? 6. What do you mean by customer action? 7. What is client interaction line? 8. What is visible line? 9. What is internal interaction line? 10. What is control line? 11. Briefly explain the concept of services. 12. Explain the different features of services. 13. What are the classifications of services? Explain. 14. Explain the factors affecting the growth of service sector. 15. What are the components of service design? 16. What are the steps in service design? 17. Explain the key steps in preparing Service Blue Printing. 18. What are the components of service blue printing? Explain.
  21. 21. UNIT - II MARKETING MIX IN SERVICES Marketing mix is the set of important internal elements that make up an organisation’s marketing programme. The marketing mix concept is a well established tool used as a structure by marketers. It can be defined as the elements an organisation controls that can be used to satisfy or communicate with customers. The phrase ‘marketing mix’ was first used by Neil H. Borden. The concept had its genesis in the classic work of James Culliton on the management of marketing costs. Borden suggested twelve marketing mix variables in the context of manufacturers. Borden’s concept of marketing mix was given due recognition in marketing theory and the concept of marketing mix was accepted as the set of marketing tools that a firm uses to pursue its marketing objectives in the target market, influenced by specific environmental variables. It was McCarthy who summed up the twelve elements of Borden’s marketing mix into 4Ps - product, price, place (i.e. distribution), and promotion. He even clarified that the customer is not a part of the marketing mix; rather, he should be the target of all marketing efforts. The activities in service marketing are different , and often do not fall in the conventional marketing mix (4Ps) classification, though many marketing concepts and tools used by goods marketers hold good in services with some change in focus and importance. The traditional marketing mix became inadequate for service industries because of the following reasons:  The concept of marketing mix as such was developed for manufacturing industries and was more oriented to deal with goods marketing situations.  Marketing practitioners in service sector found that it did not address their needs.  Due to differences in characteristics of physical products and services, marketing models and concepts had to be developed in direction of the service sector. Keeping in view the inadequacy of conventional marketing mix to address the service situations, it needs to be modified and broadened. A seven Ps framework for services has been proposed. These elements of marketing mix for services are product, price, place, promotion, people, physical evidence and process. It is important to elaborate these Ps in order to have an understanding of a specific combination of these elements to arrive at the marketing strategy for service firms.
  22. 22. Fig: Services Marketing Mix Detailed accounts of each of these elements of services marketing mix are as follows: PRODUCT A product is an overall concept of objects or processes which provide some value to customer; goods and services are subcategories which describe two types of product. Thus, the term product is frequently used in a broad sense to denote either a manufactured good or a service. In fact, customers are not buying goods or services - they are really buying specific benefits and value from the total offering. So, the most important issue in service product is what benefits and satisfaction the consumer is seeking from the service. From the point of view of a restaurant’s manager, the restaurant simply provides food. But, the customers coming to the restaurant may be seeking an ‘outing’ - an atmosphere different from home, relaxation, entertainment or even status. The marketing of services can be a success only if there is a match between the service product from the customer’s view point and the supplier’s view point. To find this match it is desirable to analyse the service at the following levels: I. Customer Benefit Concept: The service product which is offered in the market must have its origin in the benefits which the customers are seeking. But, the problem is that customers themselves may not have a clear idea of what they are seeking, or they may find it difficult to express or it may be a combination of several benefits and not a single one. Over a period of time, the benefits sought may also change. This change in customer may come about by a satisfactory or unhappy experience in utilising the service, through increased sophistication in service use and consumption, and changing expectations. All these make the issue of marketing a service product more complex. II. Service Concept: Using the customer benefits as starting point, the service concept defines the specific benefits which the service offers. At the generic level, the service concept refers
  23. 23. to the basic service which is being offered. A centre for performing arts may offer entertainment and recreation. But, within this broad framework, there can be specific choice paths for satisfying the entertainment objectives, such as, drama, musical concerts, mime, poetry recitation, dance, etc. III. Service Offer: After defining the operation of businesss, the next step is to give a specific shape and form to the basic service concept. In the case of centre for the performing arts, the service concept is to provide entertainment. The service offer is concerned with the specific elements that will be used to provide entertainment; drama, music, dances. In the category of musical concerts the choice may be vocal or instrumental, with vocal whether light or classical, Hindustani, Carnatic or Western. While these represent the intangible items of the service offer, the physical infrastructure of the centre, in terms of its seating capacity, seating comfort, quality and acoustics, provision for air-conditioning, snack bar and toilets are the tangible items. The tangible aspects can be controlled by offering the best possible benefit, but the quality and performance of the actors, singers, musicians cannot be controlled. IV. Service Forms: In what form should the services be made available to the customers is another area of decision making. Should all the shows of the centre be available in a package deal against an annual membership fee or seasonal ticket? Should there be daily tickets with the consumer having the freedom to watch any one or more performances being staged on that particular day? Should each performance have a separate entrance ticket, with a higher priced ticket for a well-known performer? Service form refers to the various options relating to each service element. The manner in which they are combined gives shape to the service form. V. Service Delivery System: When we go to bank to withdraw money, we either use a cheque or a withdrawal slip in which we fill all the particulars and hand it over to the dealing assistant, who after verifying the details, gives us money. The cheque or withdrawal slip and the dealing assistant constitute the delivery system. In case of airlines, the aeroplane, pilot, crew members, airport, etc. are the elements of delivery system. The two main elements in a delivery system are the people and the physical evidence. The competence and public relations ability of a lawyer represents the ‘people’ component, while his office building, office door, letter head, etc., are all elements of the ‘physical evidence component. The physical evidence components have also been called facilitating goods or support goods. These are the tangible elements of the service and they exert an important influence on the quality of the service as perceived by the consumers. Delivering an intangible at a level consistently is a complex issue. The experience in two flights of the same airline is not the
  24. 24. same. The visit to a bank on two occasions brings different experiences. The consumer’s service experience is, as such, a result of provider-customer interaction, atmosphere, emotional stress, anxieties, surprises, etc. It is because of these delivery factors (varying at different points of time) that no two customer experiences are identical. This variability of experience is attributable to the inability of the service firms to deliver the intangible uniformly. Service firms must learn to manage intangibles. They need to go beyond the technical skills of employees or the tangible output. Service levels should be set in accordance with the desired customer satisfaction. The answer to ‘what customer expects’ should be sought. And it is not an easy answer because the subjective nature of the customer expectations often vitiates the whole exercise. PRICE Pricing is one factor that has received much less attention in service firms. Pricing decisions in services are approached in a not-very-sophisticated manner. The role price plays in the marketing strategy is lesser known in service firms than in manufacturing firms. Even in Britain, the United States and some other developed economies where more people are employed in the provision of services than in the direct production of material goods, the marketing of services in general, and their pricing in particular, are relatively neglected aspects of management studies. Though price is one of the Ps in the marketing mix of firms, its use as a purposive marketing tool has been limited to a few marketers. Most marketers tend to adopt a passive approach and commit many mistakes in pricing their goods and services. “The most common mistakes are: pricing is too cost-oriented; price is not revised often enough to capitalize on market changes; price is set independent of the rest of marketing mix rather than as an intrinsic element of market positioning strategy and price is not varied enough for different product items and market segments”. Unlike in manufactured goods, where price has one common name across a wide range of goods, such as, fruits, clothes, computers, cars, etc.; price in services goes by different names. The services are diverse. The extent of their diversity can be gauged by the names by which the price is called in services. The below table shows some terms referring to price in different services are listed. Almost every service has its own price terminology.
  25. 25. Price Terminology for Selected Services Service Terminology Advertising Commission Brokerage service Commission Consultancy Fee Employee Services Salary Education Tuition fee Financial Services Interest/charge/commission Guest speaker Honorarium Health care Fee Insurance Premium Legal service Fee Property/Accommodation Rent Road use Toll Recreational service Ticket charge/money, Admission charge Share/Stock service Brokerage/Commission Transport Fare Utilities Tariff Source : Donald Cowell, “The Marketing of Services”, Heinemann, London. Pricing is important because it has a direct bearing on sales and profits of an organisation. Therefore, price cannot be determined in isolation without keeping in mind the sales it would generate and the profit it would earn. Generally, a trade-off is observed between the sales and the profit. A lower price of product or service is capable of generating higher sales at low profit per unit. Similarly, a high price would result in greater profit margins but the product or service may not sell that much. Pricing arithmetic is not simple. There are a number of factors that influence the pricing decisions of a firm. It is important for a firm to consider the customers, the marketing offer, competition, legal framework, and social and technological environment while setting the price. Pricing methods and practices tend to vary widely in service industries. Unlike goods which may bear similarities in processes, competition, output, raw material, labour, etc.; service industries are laden with diversity. On the spectrum of variety and uniqueness;
  26. 26. services are unique, both in their own character and in their difference from one another. This service character does not allow standardisation of pricing across various service categories. A household service supplier, banking company, hairdresser, transporter, etc.; because of their unique character, tend to consider their pricing in a variety of ways. In determining the prices of services, the one characteristic which has great impact is their perishability and the fact that fluctuations in demand cannot be met through inventory. Hotels and airlines offering lower rates in off-season and lower telephone charges for outstation calls after peak hours are examples of how pricing strategy can be used to offset the perishable characteristics of services. Another characteristic of services that creates a problem in price determination is the high content of the intangible component. The higher the intangibility, the more difficult it is to calculate cost and greater the tendency towards non-uniform services, such as fees of doctors, management consultants, lawyers, etc. In such cases, the price may sometimes be settled through negotiation between the buyer and seller. On the other hand, in services such as dry cleaning, the tangible component is higher, and the service provided is homogeneous. It is easier to calculate the cost on a unit basis and have a uniform pricing policy. In general, the more unique a service is, the greater the freedom to fix the price at any level. Often the price may be fixed according to the customer’s ability to pay. In such cases price may be used as an indicator of quality. The third characteristic to be kept in mind while determining prices is that in many services, the prices are subject to regulations, either by the government or by trade associations. Bank charges, electricity and water rates, fare for rail and air transport in India are controlled by the government. In many other cases, the trade or industry association may regulate prices in order to avoid undercutting and maintain quality standards. International air fares are regulated by international agreement of airlines, sea freight fares are regulated by shipping conferences. In all such cases, the producer has no freedom to determine his own price. The two methods which a service organisation may use to determine prices are cost- based pricing and market-oriented pricing. In the former, the price may be regulated by the government or industry association on the basis of the cost incurred by the most efficient unit. Such a pricing strategy is effective in restricting entry and aiming at minimum profit targets.
  27. 27. The market-oriented pricing may either be a result of the competition or customer-oriented. In case of competition-oriented pricing, the price may be fixed at the level which the competitor is charging, or fixed lower to increase market share. Customer-oriented pricing varies according to the customer’s ability to pay. The pricing tactics that may be used to sell services are: I. Differential or Flexible Pricing: It is used to reduce the ‘perishability’ characteristic of services and iron out the fluctuations in demand. Differential price implies changing different prices according to:  Customer’s ability to pay differentials (as in professional services of management consultants, lawyers);  Price time differentials (used in hotels, airlines, telephones where there is the concept of season and off-season and peak hours); and  Place differential used in rent of property-theatre seat pricing (balcony tickets are more expensive than front row seats) and houses in better located colonies command higher rent. II. Discount Pricing: It refers to the practice of offering a commission or discount to intermediates such as advertising agencies, stock brokers, property dealers for rendering a service. It may also be used as a promotional device to encourage use during low-demand time slots or to encourage customers to try a new service (such as an introductory discount). III. Diversionary Pricing: It refers to a low price which is quoted for a basic service to attract customers. A restaurant may offer a basic meal at a low price but one which includes no soft drink or sweet dish. Once the customer is attracted because of the initial low price he may be tempted to buy a drink or an ice-cream or an additional dish. Thus, he may end up buying more than just the basic meal. IV. Guaranteed Pricing: It refers to pricing strategy in which payment is to be made only after the results are achieved. Employment agencies charge their fee only when a person actually gets a job, a property dealer charges his commission only after the deal is actually transacted. V. High Price Maintenance Pricing: This strategy is used when the high price is associated with the quality of the service. Many doctors, lawyers and other professionals follow this pricing strategy.
  28. 28. VI. Introductory Pricing: It is one in which an initial low price is charged in the hope of getting more business at subsequently better prices. The danger is that the initial low price may become the price for all times to come. VII. Offset Pricing: It is quite similar to diversionary pricing in which a basic low price is quoted but the extra services are rather highly priced. A gynaecologist may charge a low fee for the nine months of pregnancy through which she regularly checks her patient, but may charge extra for performing the actual delivery and post-delivery visits. VIII. Competitive Parity Pricing: Prices are set on the basis of following those set by the market leader. IX. Value Based pricing: Prices are based on the service’s perceived value to a given customer segment. This is a market driven approach which reinforces the positioning of the service and the benefits the customer receives from the service. X. Relationship Pricing: Prices are based on considerations of future potential profit streams over the lifetime of customers. Relationship pricing follows closely the market oriented approach of value-based pricing but takes the lifetime value of the customer into account. PLACE In order to bring the products to the customer, the marketer has to work with distribution channels that are the interdependent set of organisations involved in the process of making the goods or services available. Service marketers, like goods marketers, also have to handle distribution channel problems. They too, have to make their services available to target customers without which marketing cannot take place. Because of intangibility of services, they cannot be stored, transported and inventoried. Similarly, because of inseparability, that is, in case of services production cannot be separated from selling, services must be created and sold at the same time. These characteristics of services make distribution strategy more complex and difficult. There are three critical issues that must be sorted out while evolving the distribution channels for a service: I. Location of the service: Location is concerned with the decisions a firm makes about where its operations and staff are situated. The importance of location for a service depends upon the type and degree of interaction involved. When the customer has to
  29. 29. go to the service provider, location becomes very important. For a service business such as a restaurant, location may be one of the main reasons for patronage. In this type of interaction, service providers seeking growth can consider offering their services at more than one location. Where the service provider can go to the customer, site location becomes much less important provided it is sufficiently close to the customers for good quality service to be received. In some circumstances, the service provider has no discretion in going to customer as certain services must be provided at the customer’s premises. This is the case with a wide range of maintenance services such as, lift repair, cleaning services etc. However, when the customer and service organisation transact at arm’s length location may be largely irrelevant. Customers are not concerned with where the physical locations are of suppliers of services such as electricity, telephone or insurance. There are three important questions that would help service provider in deciding where to locate service:  How important is the location of the service to the customers?  Is the service, technology - based or people-based?  How important are complementary services to the location decision? The selection of location and site for a service depends on a number of factors and trade - offs among benefits and costs. The below table depicts the critical factors affecting the location decisions, vary from one service to another. Critical factors affecting choice of location Critical Factors Services Convenience Retail Stores, Health Centres, Bank, Repair Services, Theatre, Personal Care Cost Operating Speciality Shops, Wholesalers, Clerical Services Proximity with composition to share Support system availability Furniture, Fast Food, Antique Shop, Tailors, designers, Hotels, Jewellers, Tourism Geographic of Environmental Factors Beach Resorts, Ski Resorts Business Climate Insurance Companies, Private Educational Institutions Communication Networks Banks, Financial Services Transport Facilities Mail Order Houses, Couriers, Warehouses
  30. 30. II. Channels through which services are provided: The second decision variable in the distribution strategy is whether to sell directly to the customers or through intermediaries. Traditionally it has been argued that direct sales are the most appropriate form of distribution for services. Whilst this form of distribution is common in some service sectors, e.g., professional services, companies in other areas of the service sector are increasingly seeking other channels to achieve improved growth and to fill unused capacity. Many services are now being delivered by intermediaries and these can take a variety of forms. The broad channel options for services are direct sales, agent or broker, sellers’ and buyers’ agents, franchises or contracted service deliverers, etc. III. How to provide service to maximum number of customers: The third decision variable in the distribution strategy is how to provide the service to a maximum number of customers in the most cost-effective manner. Some of the innovations in the area are:  Rental or Leasing-Leasing or Rental offers an easy solution for companies which want to expand and diversify but do not have the necessary resources to buy the required plant and machinery. This trend is now also becoming popular in services.  Franchising-Franchising is the granting of rights to another person or institution to exploit a trade name, trade mark or product in return for a lump-sum payment or a royalty. In service industries franchises operate in the area of hotels, restaurants, car rentals, fast food outlets, beauty parlours, travel agencies, couriers, computer education etc.  Service Integration - Recent times have also witnessed the growth of an integrated service system. Hotels offer local tours and airlines offer holiday resort services. Travel agencies offer ‘package tours’ in which they take care of all formalities such as visa, foreign exchange, reservations, local travel, etc. All these trends highlight the importance of using innovative methods to overcome the inherent characteristics of service products which make their distribution a complex affair. PROMOTION The promotion element of the services marketing mix forms a vital role in communicating the positioning of the service to customers. Promotion adds significance to
  31. 31. services; it can also add tangibility and help the customer make a better evaluation of the service offer. The fundamental difference which must be kept in mind while designing the promotion strategy is that the customer relies more on subjective impressions rather than concrete evidence. This is because of the inherent nature of services. Secondly, the customer is likely to judge the quality of service on the basis of the performer rather than the actual service. Thirdly, since it is difficult to sample the service before paying for it, the customers find it difficult to evaluate its quality and value. Thus, buying a service is a riskier proposition than buying a product. So, the service marketers must design a promotion strategy which helps the customers overcome these constraints. George and Berry have identified six guidelines for services advertising which really are applicable to most elements of the communication mix. These apply to a wide range of service industries, but not to all of them, because of the heterogeneous nature of services.  Provide Tangible Clues- A service is intangible in the sense that a performance rather than an object is purchased. Tangible elements within the product surround can be used to provide tangible clues, e.g. seating comfort in Aircraft.  Make the Service Understood- Services may be difficult to grasp mentally because of their intangibility. Tangible attributes of the service can be used to help better understand the service offered, e.g. Credit Cards.  Communication Continuity- This is important to help achieve differentiation and present a unifying and consistent theme over time. McDonalds and Disney logo provide good examples of such continuity.  Promising what is Possible- Service firms need to deliver on their promises. If a promise such as fast delivery cannot be consistently met, it should not be made at all, e.g. Domino’s Pizza.  Capitalising on Word of Mouth- The variability inherent in services contributes to the importance of word of mouth. Word of mouth is a vitally important communication’s vehicle in services, as evidenced by the way we seek personal recommendations for Lawyers, Accountants, Doctors, Bankers, etc.  Direct Communications to Employees- In high contact services communication should be directed at employees to build their motivation, e.g. Cabin Crew of Airlines. The promotion mix of services includes the following elements:
  32. 32. I. Advertising: It is any kind of paid, non-personal method of promotion by an identified organisation or individual. The role of advertising in services marketing is to build awareness of the service, to add to customer’s knowledge of the service, to help persuade the customer to buy, and to differentiate the service from the other service offerings. Relevant and consistent advertising is therefore, of great importance to the success of the marketing of the service. Advertising has a major role in helping deliver the desired positioning for the service. Since the core product is intangible it is difficult to promote, and therefore, service marketers frequently choose tangible elements within the product for promotion. Thus, airlines promote the quality of their cuisine, seat width, and the quality of their in-flight service. Certain services such as entertainment, transportation, hotel, tourism and travel, insurance, etc. have been advertising heavily in newspapers, magazines, radio, TV to promote greater usage and attract more customers. However, certain service professionals such as doctors and lawyers had rarely used advertising as a means of increasing their clientele. But, this situation is changing and one can occasionally see an advertisement in the daily newspaper giving information about the location and timings that a particular doctor is available for consultation. II. Personal Selling: Personal selling has a vital role in services, because of the large number of service businesses which involve personal interaction between the service provider and the customer, and service being provided by a person, not a machine. The problem with using personal selling to promote services is that in certain types of services, the service cannot be separated from the performer. Moreover, it is not a homogeneous service in which exact standards of performance can be specified. In such situations, personal selling implies using an actual professional rather than a salesman to sell the service. A firm of management consultants may send one of its consultants for soliciting new business. This kind of personal selling is certainly effective but also very expensive. One way of making personal selling more cost effective is to create a derived demand by tying up with associated products and services. A management consultant may associate with a bank, so that the bank recommends his name as a consultant to any new entrepreneur coming for a loan. A chain of hotels may team up with an airline to offer a concessional package tour. The other way is to maintain a high visibility in professional and social organisations, getting involved in community affairs and cultivating other professionals so as to maximize personal exposure and the opportunities for getting work from new sources.
  33. 33. Personal selling has a number of advantages over other promotion mix elements, such as:  Personal Contact- Three customer contact functions have been identified; selling, servicing and monitoring. These personal contacts should be managed to ensure that the customer’s satisfaction is increased or maintained at a high level.  Relationship Enhancement- The frequent and sometimes intimate contact in many service businesses provides a great opportunity to enhance the relationship between the seller/service provider and the customer.  Cross Selling- The close contact frequently provides the opportunity for cross-selling other services. The sales persons are also in a good position to communicate details of other services which they may offer to customers. III. Sales Promotion: In the case of services, the sales promotion techniques which are used are varied and various in number. Traditionally, sales promotion has been used mainly in the fast moving consumer goods market. However, in the recent past we have seen a trend for many service firms to use sales promotion. Sales promotion tools are aimed at these audiences:  Customers - Free Offers, Samples, Demonstrations, Coupons, Cash Refunds, Prizes, Contests and Warrantees.  Intermediaries- Discounts, Advertising Allowances, Cooperative Advertising, Distribution Contests and Awards.  Sales Force- Bonuses, Awards, Contests and Prizes for Best Performer. A number of activities can be undertaken which aim at providing incentive to encourage sales. A doctor may charge lesser amount as fee on subsequent visits to encourage patient’s loyalty, a car mechanic may offer a guarantee for repairs undertaken up to three months, a chartered accountant may offer his services free for the first two visits to allow the customer to evaluate his work. In services, sales promotion techniques are also used to offset their perishability characteristic, e.g., family discounts offered by hotels in off-season in which two children under twelve are allowed free of charge. Sales promotion helps to overcome the problem faced by customers in evaluating and judging the quality before making the purchase, thus, it reduces the risk associated with the purchase.
  34. 34. IV. Publicity: It is unpaid for exposure which is derived by getting coverage as a news or editorial item. It is possible to get publicity when the service which one is offering is unique and, therefore, newsworthy, by holding a press conference in which offered services can be associated with some issues of greater social relevance or by involving the interest of the newspaper or its staff in covering the service. The important point about publicity is that the choice of newspaper, magazine and journal should be correct. The vehicle which is chosen must be credible and enjoy a reputation of being trustworthy. A wrong choice of media vehicle will result in adverse publicity. V. Word of Mouth: One of the most distinctive features of promotion in service businesses is the word of mouth communications. This highlights the importance of the people factor in services promotion. Customers are often closely involved in the delivery of a service and then talk to other potential customers about their experiences. Research points to personal recommendations through word of mouth being one of the most important information sources. Where people are the service deliverers personal recommendation is often the preferred source of information. Thus, word of mouth can have a more important impact than other promotion mix elements in a number of services, including professional and health care services. Positive or negative word of mouth communication will then influence the extent to which others use the service. However, negative experiences tend to have a greater impact than positive experiences. Customers who are dissatisfied tend to tell more than twice as many people of their poor experiences as those who are satisfied relate good experiences. DISTRIBUTION METHODS After the product, price, and promotion has been decided, the service has to be available to the consumer where and when they want to buy. Consumers should be able to get to the service easily, and has to be in the right place to sell well. Service Provider Consumer Service Provider Agent Consumer Service Provider Franchisor Franchisee Consumer
  35. 35. COMMON CHANNELS OF DISTRIBUTION 1. Direct Channel: In this channel, producers sell their goods and services directly to the consumers. There is no middleman to come between the producers and consumers. 2. Indirect Channel: If the producer is producing goods on a large scale, it may not be possible for him to sell goods directly to consumers. As such, he sells goods through middlemen. PEOPLE In services, ‘People’ refers to all human actors who play a part in service delivery and thus influence the buyer’s perceptions; namely, the firm’s personnel, the customer, and other customers in the service environment. All of human actors participating in the delivery of a service provide clues to the customer regarding the nature of the service itself. How these people are dressed, their personal appearance, and their attitudes and behaviours all influence the customer’s perception of the service. If the service personnel are cold and rude, they can undermine all the marketing work done to attract the customers. If they are friendly and warm, they increase customer satisfaction and loyalty. Employee behaviour is often an integral part of the service product. This is not true in a manufacturing operation, where employee behaviour may affect product quality, but is not a part of the product. People constitute an important dimension in the management of services in their role both as performers of services and as customers. People as performers of service are important because, a customer sees a company through its employees. The employees represent the first line of contact with the customer. They must, therefore, be well informed and provide the kind of service that wins customer approval. The firm must recognise that each employee is a salesman for the company’s service. If these employees are not given training in how to go about face-to-face customer contact, the entire marketing effort may not prove to be effective. The importance of customers in services stems from the fact that most services imply active and involved customer-organisation interface. In many service situations, customers themselves can also influence service delivery, thus affecting service quality and their own satisfaction. Customers not only influence their own service outcomes, but they can influence other customers as well. People can be subdivided into:
  36. 36. I. Service Personnel: Service personnel are important in all organisations but more so in an organisation involved in providing services. The behaviour and attitude of the personnel providing the service is an important influence on the customer’s overall perception of the service and he can rarely distinguish between the actual service rendered and the human element involved in it. Customer contact is very important concept in services, which refers to the physical presence of the customer in the system. The extent of contact refers to the percentage of time a customer ought to be in the system out of the total time it takes to serve him. The low contact services include bank, post offices or retailing and the high contact services include hotels, educational institutions, restaurants and hospitals. Services with high contact are more difficult to control and manage because a longer customer contact is more likely to affect the time of demand, and nature of service and its quality; whereas, in low contact services such contact has much less impact on the service. Therefore, the high contact personnel must be dexterous in public relations and inter-personal skills, and the low contact personnel must have high technical and analytical attributes. The quality and performance of service personnel can be improved through:  Careful selection and training of personnel;  Laying down norms, rules and procedures to ensure consistent behaviour;  Ensuring consistent appearance; and  Reducing the importance of personal contact by introducing automation and computerization wherever possible. II. Customers: Customers are important because they are a source of influencing themselves, being actively involved in service delivery, and other customers as well. In case of Doctors, Lawyers, Consultant’s one satisfied customer will lead to a chain reaction, bringing in his wake a number of other customers. So, it’s an important task of service marketers to ensure complete satisfaction of the existing customers. The kind of customers that a firm attracts exerts an important influence on prospective customers. The prospective customer may feel attracted towards the organisation e.g., Club, Restaurant, School, because it has his type of customers or the customer may turn away if he perceives the existing customers to be a kind with whom he would not like to associate.
  37. 37. PHYSICAL EVIDENCE It refers to the environment in which service is delivered and where the firm and customer interact, and any tangible components that facilitate performance or communication of the service. The physical evidence of service includes all of the tangible representations of the service such as, Brochures, Letterhead, Business Cards, Report Format, Signage, Equipment, etc. Packaging importance stems from the fact that it is what comes in between the product and the customer’s eye. The product package is a visual representation of the whole marketing effort. The customer judgement and evaluation are often based on the product packaging. Physical evidence is to a service, what the packaging is to a product. In services, the product itself being intangible, the need is to tangibles it as far as possible. Thus, physical entities can be successfully employed to describe the service product and its distinguishing qualities. Since the potential customers form impressions about the service organisations on the basis of physical evidence, like building, furniture, equipments, stationery and brochures, it becomes imperative that the marketers manage the physical evidence in a manner that reinforces the proposed position and image of the organisation. Cleanliness in a doctor’s clinic, the exterior appearance and interior decor of a restaurant, the comfort of the seating arrangement in a cinema hall, adequate facility for personal needs at the airport, all contribute towards the image of the service as perceived by the customer. The common element in these is that they are all physical, tangible and controllable aspects of a service organisation. There may be two kinds of physical evidence: I. Peripheral Evidence: It is actually possessed as a part of the purchase of service but by itself is of no value. An airline ticket, cheque book, or receipt for a confirmed reservation in a hotel is examples of peripheral evidence. A cheque book is of value only if customer has money in the bank, without that it is of no significance. Peripheral evidence adds on to the value of essential evidence, such as writing pad, pen, match box, complimentary flowers and drinks, etc. in a hotel, which customer may take away. Such evidence must be designed keeping in mind the overall image which the organisation wishes to project and the reminder value of the evidence in its ability to remind the customer about the organisation. II. Essential Evidence: Whereas the peripheral evidence is possessed and taken away by the customer, the essential evidence cannot be possessed by the customer; the
  38. 38. building, its size and design, interior layout and decor, logo, etc. of the organisations are constituents of essential evidence. The essential evidence is a very critical input in determining the atmosphere and environment of the service organisation. Physical evidence can be used to build strong association in the customers’ minds and service can be differentiated from the competitor’s similar offering. By making the service more tangible and making it easier for the customer to grasp the concept of the service, marketers can create the ideal environment for the service offering. PROCESS Process in services refers to the actual procedures, mechanisms, and flow of activities by which the service is delivered- the service delivery and operating systems. In a service organisation, the system by which customer receives delivery of the service constitutes the process. In fast food outlets the process comprises buying the coupons at one counter and picking up the food against that at another counter. The process of a delivery function which can be compared with that of operations management implies the conversion of input into the finished product. But, in a service organisation, there is no clear cut input or output. Rather, it is the process of adding value or utility to system inputs to create outputs which are useful for the customers. The process by which services are created and delivered to the customer is a major factor within the services marketing mix, as services customers will often perceive the service delivery system as part of the service itself. Thus, decisions on operations management are of great importance to the success of the marketing of the service. In fact, continuous coordination between marketing and operations is essential to success in most services businesses. Identification of process management as a separate activity is a prerequisite of service quality improvement. The importance of this element is especially highlighted in service businesses where inventories cannot be stored. Through the introduction of Automatic Teller Machines (ATMs) banks have been able to free staff to handle more complex customer needs by diverting cash only customers to the ATMs. If the processes supporting service delivery cannot, for example, quickly repair equipment following a breakdown or provide a meal within a defined period, an unhappy customer will be the result. This suggests that close cooperation is needed between the marketing and operations staffs who are involved in process management. By identifying processes as a separate marketing mix element, its importance to service quality is duly recognized.
  39. 39. QUESTIONS 1. What is Service Marketing Mix? 2. What is Service Concept? 3. What is Customer Benefit Concept? 4. What is Service Delivery System? 5. What is Flexible Pricing? 6. What is Guaranteed Pricing? 7. What is High Price Maintenance Pricing? 8. What is Offset Pricing? 9. What is Direct Channel? 10. What is Peripheral Evidence? 11. Discuss Service Marketing Mix. 12. Explain the product in service mix. 13. Explain the people element in service mix. 14. Briefly explain the promotion mix in service marketing.
  40. 40. UNIT III EFFECTIVE MANAGEMENT OF SERVICE MARKETING The growing importance of service industry in today’s context has forced the academic interest towards the service sector. Basically industrial and economic activities have been classified into three categories viz. primary, secondary and tertiary. Primary activities are concerned with agriculture, fishing, mining and forestry. Secondary activities include manufacturing and construction, whereas a tertiary activity comprises services and distribution. Before the industrial development, the primary and secondary activities were the mainstay of the economy. But the process of commercialization has emphasized the priority of service sector. In present era, it has become major industry and has apex importance in the economy. However the term service is very simple to say but it is very difficult to explain in precise words because it is general in concept. Services are economic activities that create value and provide benefits for customers. It is an act or performance offered by one person another and which is especially separately identifiable, intangible, non transfer of ownership and perishable in character. Services includes a wide variety of activities i.e. utilities, law enforcing, civil, administrative and defence, transport and communication, distribution traders, business profession, leisure and recreation. The growth of service industry is the result of economic development of the society and socio-cultural change among the people. Sometimes, it may be possible that the specific service industry is the result of a combination of several reasons. Services are economic activities that create value and provide benefits to customers at specific times and places as specified by the recipient of the service. Services are those separately identifiable, essentially intangible activities which provide want, satisfaction, and that are not necessarily tied to the sale of a product or another service. To produce a service may or may not require the use of tangible goods. However when such use is required, there is no transfer of title (permanent ownership) to these tangible goods. The Service Concept The service concept is the core of the service offering. Two Levels of Service Concept are possible. The ‘general’ service concept refers to the essential product being offered (e.g. a car hire company offers solutions to temporary transportation problems). In addition, there will be ‘specific’ service concepts at the core of specific service (e.g. candle- lit dinners or oriental foods for restaurants). The service concept has to be translated into the ‘service formula’. This translation process, implies not only a clear definition of the service concept (i.e. what consumer benefits is the service firm aiming to serve; which service attributes best express the consumer benefit). It also demands attention to the service process; that is the ways and means the service is produced distributed and consumed the market segment has to be identified the organization-client interface has to be organized in a network the service image has to facilitate clear communication between the service organization and its potential clients.
  41. 41. The service concept is the definition of the offer in terms of the bundle of goods and services sold to the consumer plus the relative importance of this bundle to the consumer. It enables the manager to understand some of the intangibles, elusive and implicit that affect the consumer decision and to design and operate his organization to deliver a total service package that emphasizes the important element of that package. The marketing concept dictates that marketing decisions should be based upon customer needs and wants. Buyers purchase goods and services to satisfy their needs and wants. Thus when a buyer engages in a market transaction he perceives a bundle of benefits and satisfaction to be derived from that transaction. However he does not usually divide the market offering into its component parts. From the sellers’ view point however the market offering can be divided into its component parts. The marketing mix is the convenient means of organizing all the variables controlled by the marketer that influence transactions in the marketplace. It is a ‘checklist approach’ where marketer’s attempt to list and organize the variables under their control which may be important in influencing transactions in the market place. THE COMPONENTS OF A SERVICE The products that firms market do differ in extent to which they involve the transfer of ownership of physical goods. However, intangible components inevitably play a pivotal role in winning and maintaining a satisfied customer. The Physical product is whatever the organization transfers to the customer that can be touched. It is tangible and physically real. Examples include houses, automobiles, computers, books, hotel soap and shampoo, and food. The Service product is the core performance purchased by the customer, the flow of events designed to provide a desired outcome. It refers to that part of the experience apart from the transfer of physical goods and typically includes interactions with the trim’s personnel’. The service environment can also signal the intended market segment and position the organizations. For example, a restaurant near a university campus might signal that it is catering to college students by putting college memorabilia and pictures of students on the walls. The service product is the result of “planning your work, “and the service delivery is the result of working your plan. MANAGEMENT OF SERVICE OFFER The service offer is concerned with giving more specific and detailed shape to the basic service concept notion. Management of services offer is concerned with making decisions viz. what service will be provided, when they will be provided, how they will be provided and so on. These decisions and thinking through the implication of actions affecting these components:
  42. 42. 1. Elements of Service The service elements are the ingredients of a total service offer; they are the particular bundle of tangibles and intangibles which compose the service product. Service managers face two particular problems in defining the composition of a service offer. First there is the difficulty of articulating all of the elements that could make up a service offer. It is usually easier to articulate the tangible elements than the intangible. Secondly there is the difficulty of deciding upon the particular set of elements the service organization will actually use in its service offer. But some elements of a service offer are less controllable. Management can ensure that all guests singing in at a hotel reception desk are formally greeted by the receptionist. There is less control over the warmth of the greeting. Nevertheless management must try to anticipate some of these controllable elements and ensure that the climate of the organization contributes to rather than detracts from the service offer. 2. Forms of Service Service elements are offered to the marketplace in different forms. Service form is concerned with examining in details the various options relating to each service elements. The particular decision taken on the precise form of each service elements will depend upon a number of factors including market requirements, competitors’ policies and the need to obtain balance within, and between, the various elements that make up the service product offer-what is called ‘cohesiveness and coherence of the set of services offered’. 3. Levels of Service An offer can be viewed at several levels as follows: a) Core or generic: For consumer or industrial products this consists of the basic physical product, e.g. a camera. The core elements for a camera, consists of the camera body, the viewer, the winding mechanism, the lens and the other core basic physical components which make up the transactional utility in the form of deposits and withdrawals. b) Expected: This consists of the generic product together with the minimal purchase conditions which need to be met. When a customer buys a video cassette recorder they expect an instruction book which explains how to programme it, a warranty for a reasonable period should it break down, and a service network so that it can be repaired. c) Augmented: This is the area which enables one offer to be differentiated forms another. For example, IBM has a reputation for excellent customer service although they may not have the most technologically advanced core product. They differentiate by ‘adding value’ to the core, in terms of service reliability and responsiveness.
  43. 43. d) Potential: This consists of all potential added features and benefits that are or may be of utility to some buyers. The potential for redefinition of the product gives advantages in attracting new users or ‘looking’ in ‘existing customers. This could make it difficult or expensive for customers to switch to another supplier. PRODUCT LIFE-CYCLE All Product and services have certain life cycles. The life cycle refers to the period from the product’s first launch into the market until its final withdrawal and it is split up in phases. During this period significant changes are made in the way that the product is behaving into the market i.e. its reflection in respect of sales to the company that introduced it into the market. Since an increase in profits is the major goal of a company that introduces a product into a market, the product’s life cycle management is very important. Some companies use strategic planning and others follow the basic rules of the different life cycle phase that are analyzed later. The understanding of a product’s life cycle, can help a company to understand and realize when it is time to introduce and withdraw a product from a market, its position in the market compared to competitors, and the product’s success or failure. Introduction In the beginning, sale of new products increase slowly. Factors influencing the growth of sales at this stage include the relatively small number of innovative customers, problems of building effective distribution, technical problems of assuring quality and reliability and limited production capacity. Profits too may be low or non-existent at this stage because of factors like the promotional costs involved in promoting sales. Growth In this stage sales grow. More consumers follow the lead of innovators, the market broadens through policies of product differentiation and market segmentation, competitors enter the market, and distribution broadens. Profit margins peak as experience effects serve to reduce unit costs and promotional expenditures are spread over larger sales volumes.
  44. 44. Maturity In this stage, sales are at peak. The growth rate in sales goes considerably down as most of the consumers are already having the product where as new ones are difficult to add. Profit margins are at peak and reduced unit costs and promotional expenditures are spread over larger sales volumes. Saturation In this stage, sales level is almost stagnant. Growth is increasingly governed by factors like population growth or attempts to stretch the cycle through market segmentation strategies. Profits too decline because of the number of competitive offerings, cost reductions become more difficult and smaller specialist competitors eat into the market. Decline In this stage sales decline because of changing tastes, fashions and technical advances causing product substitution. Declining sales are accompanied by reducing profit margins as too many competitors fight for the remaining market. Price cutting may be active and marginal competitors fall out of the industry. PROBLEM WITH THE PRODUCT LIFECYCLE In reality, lifecycle patterns are far too variable in both shape and duration for any realistic predictions to be made. A second difficulty in applying the lifecycle concept lies in the inability of marketers to ascertain accurately where in the lifecycle a product actually is at any time. For example, a stabilization of sales may be a movement into maturity or simply a temporary plateau due to external causes. In fact, it is possible that the shape of the lifecycle is a result of an organization’s marketing activity rather than an indication of environmental factor to which the organization should respond-in other words; it could lead to a self- fulfilling prophecy. Another criticism of the concept is that the duration of the stages will depend upon whether it is a product calls, form or brand which is being considered. For example, the lifecycle for holidays is probably quite flat, whereas those for particular formulations of holidays and for specific holiday operators’ brand become progressively more cyclical. STRATEGIES OF SERVICE PRODUCTS 1. Market Penetration: An organization continues to supply its existing services to its existing customer segments, but seeks to increase sales from them. This may be achieved by increasing their total consumption of that type of service, or by taking consumers from competitors. 2. Market Extension: New types of consumer are found for existing services. For example, a restaurant chain may extend its operations to a new overseas market, or higher education institutions may promote their courses to new groups of students.
  45. 45. 3. Service Development: New or modified services are developed to sell to the current market. For example, a bank may offer a new type of charge card aimed at its current customer base. 4. Diversification: New services are offered to new markets. For example, a traditional package holiday operator offering a conference organizing service. NEW SERVICE DEVELOPMENT The new service development process can be described as consisting of three macro stages: the front end, the back end and product introduction. The front end essentially chooses what service concept should be developed, the back end implements the chosen service concept, and the product introduction opens the implemented service for use by actual customers. The three macro-stages and their elements are detailed in Front end steps are traditionally conducted by marketing, back end steps by operations and product introduction step by both marketing and operations. The different stages in new service development process are: 1. Idea Generation Ideas may be generated in many ways. They can arise inside the organization and outside it, they can result from search procedures (e.g. marketing research) as well as informally; they may involve the organization in creating the means of delivering the new service product or they may involve the organization in obtaining rights to services product, like franchise. 2. Idea Screening This stage is concerned with checking out which ideas will justify the time, expense and managerial commitment of further research and study. Two features usually associated with the screening phase are: i. The establishment or use of previously agreed evaluative criteria to enable the comparison of ideas generated (e.g. ideas compatible with the organization’s objectives and resources); ii. The weighting, ranking and rating of the ideas against the criteria used. 3. Concept Development and Testing Ideas serving the screening process then have to be translated into product concepts. In the service product context this means concept development and concept testing. (a) Concept Development This phase is concerned with translating the service product idea, where the possible service product is defined in functional and objective terms, into a service product concept, the specific subjective consumer meaning the organization tries to build into the product idea.